Regionalism, innovation and the location of German direct investment

This paper explores the extent to which the scale and location of foreign direct investment by German manufacturing corporations is affected by indigenous technological developments and different forms of regional integration agreements. The authors use an annual panel data set covering investment in the individual EU countries, EFTA, the United States, Latin America and East Asia and control for market size, relative factor cost and domestic financial conditions. The results provide evidence of regional heterogeneity, with investment in the EU being primarily driven by market demand and relative costs and investment outside the EU being more heavily influenced by technological and financial factors.

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